The importance of knowing the psychology of market and market sentiment is beyond imagination. And that is because we want to be in control and if things roll out the way we imagined or percieved to be beneficial to us we all get ecstatic. Below is our take on how to understand these terms and importance of why considering them in your decision making for big purchases.

Market Sentiment 

People believe that boxing day is best day to shop for some items. Some people swear by price of electronic items being lowest during Black Friday of each year. For Real Estate Market sentiment though, think about the position to take when you hear news such as Bank of Canada's stance on inflation, interest rate cuts or its upward trend. People take a position in their spending pattern for housing and if conditions are in favor of buying or selling real estate, market sentiment changes.   

From a market sector perspective, this will result in shortage or over supply of items in the market. If real estate market sentiment is positive, we enter into the sellers market where there's a shortage of housing supply in the market as a natural course that's lead by higher number buyers swarming the market. 

Investment sentiments might be a touch different than the above mentioned yet not totally divergent from it. Investors usually have a long term plans. And in a long term plan the average appreciation of the market will be considered lower than short term considering the factors such as cyclicality of market, time value of land, and money market situation at the time of procuring and disposal of property. 

A clear-cut difference doesn't exist between the value that end users are willing to put on properties than investors do. The fact that the distortion of data at peak times in market is so much so that even a veteran investor thinks that the thershoulds should be higher this time and base effect errors might happen. Investors buy in hot market and that's a fact. At the end of the day they make decisions like ordinary buyers. 

What's psychology in Real Estate Market?

Market is too hot that if I sell I may not be able to buy what I want. I am sure that you either think about this line, heard it before, or said it to someone at some point. This is an example of psychology of buyers. Complicated? Welcome to my world!

We are alike! We are tanlged in our daily routine. What we hear is what makes our perception of world around us. And collectively we form a society, group of friends and co-workers and so on. The overall impact that behaviour of a group of people have on the economy of themselves is studied as psychology of this group. 

As said above we are looking for general direction where bahaviours of a group of people are taking us. It's simpler to work around market sentiment than a psychology. Psychology is multidimensional, hard to understand, and easy to overlook. It's so delicate that if as an agent shows a property in a very positive sentiment market but is a bad psychology envornment the buyer will be under water for a long time. 

News and govenment backed media tries to always publish information that's high level and has no direction except in Macro-level of society the news believes to be a best decision from government. The group psychology might be positive (hyped) or negative (depressed) but this doesn't impact each individual because it's still Macro-level and that's what's consumed by government entities to set further policies to manage the general behavour to the benefit of society. 

Examples will make all the above more clear for you. Ina  acertain neighborhood psychology of market is so positive that might be against the sentiment of market. In this neighborhood number of transactions are above the rest of the town because the school area that the neighborhood covers and value that type of housing that exist in the neighborhood provides is assuring every buyer that the purchase price is safe bet for value they're getting. 

A real example is Bantry neighborhood in Richmond Hill and in a period of low sentiment market in 2010-2013 as well as 2017-2019, this neighborhood performed well above average neighborhoods in richmond hill and all purchases we have had on behalf of clients in the neighborhood has done significantly well in terms of return of investment and peace for families to live there. 

Conclusion 

Market sentiment is general risk perception of what the total market is having cosidering the market situation. This term is generally uses and has confused at the same time majority of sellers and buyers when they hear that in the very hot market or a slow market some neighborhoods, or type of housing act completely contrary to the rest of the markets and they stay on market much longer or sell soonest and highest. This comes back to the psychology of markets whether it being micro market or macro, the fact is that psychology have to be explored and examined in action than anything else in order to have answer to a $1M question of why I can't achieve this while my neighbor or friend did this at the same time that I am in the market. As explained in the market, psychology will matter much more than anything else hence the market is unified and there's no distingushing factor between good or bad. 

Our team approves this article and can speak to this with you in details and with more examples to make sure your next real estate transaction passes our resilience test!